It isn’t. Cash-wise, it’s worth about $4 billion, which is what Facebook paid, plus $15 billion of Facebook stock, which will basically be toilet paper in a few year’s time. To understand why Facebook paid that, you need to understand the “value” of apps and how Facebook thinks.

I notice “value” is in quotes.

There’s a reason. WhatsApp was not making money, had no plan to make money, and will, after Facebook eats, still not make any money.

The best analogy here is broadcast television. It’s easy to forget that TV shows, in and of themselves, do not necessary make the network money, but the fact that we watch them makes broadcast networks an enormous amount of money. The audience is the product.

This is more or less what happened with WhatsApp. Even if every single one of its customers shelled out for the service, which they don’t, it would still only be making $450 million a year. But it has 450 million customers, in areas Facebook would like to have more market share in. Hence the sale.

Users are that valuable?

To Facebook? You bet. And by that standard, it’s not a bad idea to add half again your userbase while taking out a competitor to Facebook Messenger in one fell stroke. But it’s also managed to screw over Facebook.

How?

As we’ve noted before, Facebook’s strategy for dealing with competitors has used one of two methods: Buy them out or lock them out. The former is why Instagram is Facebook with more pictures, and the latter is why your Vines won’t post to Facebook. But the WhatsApp buyout has killed that strategy dead.

When the next competitor to Facebook in some way comes along, whether it’s an app that’s beating out part of their ecosystem or a social network that’s potentially a threat, in the back of their minds, they’re going to remember WhatsApp got $19 freaking billion out of Facebook, and they’re going to want more. And if Facebook won’t, or more likely can’t, pay that out, and locking them out isn’t an option, then Facebook is going to have to actually compete.

That’s not going to go well for Facebook. They’ve rarely had to compete like most businesses do; social media is so young as an industry that often robust improvements are all the competing you really need. And it is true that there’s not really a competitor on the horizon, yet. But it seems likely that sooner or later, there will be, and then Facebook will need a new strategy.

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When I read stories like this about enormous amounts of make-believe money being traded for databases of consumers’ personal information, it makes me wonder if maybe a few of the conspiracy theorists aren’t more than just a little less crazy.

Facebook’s competition was MySpace, and all they really had to do was deliver a cleaner product. Sort of the way that Google’s competition once was AltaVista, Lycos, et al., then this search engine comes along and yes, it worked better… but it got me to use it because it wasn’t overwhelmed with blinking, chattering, ads.

As Facebook loads up with BS, I think its real competition will come from something that simplifies.

The problem is that any competition that rises up against Facebook will inevitably be backed by some investors who want huge returns. In order to get that they’ll need to either sell out or generate ad revenue. The only way that FB gets bested is if someone is willing to invest piles of their own money without the expectation of getting a return on that capital. If I was an eccentric billionaire maybe I’d like to be known as the guy who totally fucked Facebook’s business model, but then most people who have that kind of money got it because they didn’t make gigantic, money-losing deals.

Facebook is used daily by me… but I’ve never considered it a necessity. It’s something I signed up for because a friend of mine took her blog there. If they wanted to charge me a dollar, I’d probably close up my account.

I wanted to type “it’s not that I’m cheap” because I’m typically pretty extravagant when I don’t need to be, but obviously not being willing to spend $12 a year on something is kind of cheap.

How are users valuable when the WhatsApp people said there would still not be any ads in their program? Was that just a lie, or are you talking about some sort of integration resulting in these WhatsApp users becoming Facebook users? Still doesn’t seem like that’s worth all those billions, but eh.